The powerful superannuation funds behind the $5.1 billion purchase of two NSW ports have warned the pace of privatisation in Australia is lagging the rapid accumulation of superannuation capital, forcing them to invest in infrastructure assets coming up for sale in markets from Europe to the US.

Union-influenced Industry Funds Management and AustralianSuper teamed up with Abu Dhabi Investment Authority and QSuper in a successful bid to buy the 99-year lease for Port Botany and Port Kembla last week.

They have warned state and federal governments to offer a much bigger pipeline of infrastructure assets to invest in by embracing privatisation, or risk the surplus of capital going offshore.

“There’s a lot of people talking about institutional investors, including super funds, investing in domestic infrastructure, but that line entirely misses the point,"
Ian Silk
, chief executive of AustralianSuper, told The Australian Financial Review.

“There’s no shortage of capital, what there is is a shortage of is good quality assets. Investors will have no option but to invest more overseas than they’d like unless there is a strong pipeline of infrastructure assets coming on. Everyone is saying Australia could do with better, high-quality infrastructure – we just have to be able to invest in it."

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A report from Infrastructure Australia last year identified up to $219 billion worth of “lazy" assets owned by state and federal governments that it found should be sold to plug the nation’s infrastructure gap, reduce debt and lift productivity in the businesses.

Wave of privatisations not expected

The report from the government’s top infrastructure adviser recommended selling assets including power generators, airports, ports and water utilities such as the Snowy Hydro to Australian superannuation funds, which have expressed a clear desire to invest in the asset class because of its stable, long-term returns.

Despite the report’s recommendations and the NSW ports sale – the highest price achieved for a single government asset in the state – neither AustralianSuper nor IFM believe a second wave of privatisation in Australia is coming any time soon.

“To some extent it does surprise us, and it is a challenge, but we don’t expect a big wave [of privatisation]," said IFM chief executive
Brett Himbury
.

“At this stage we are not aware of any other significant plans in Australia to privatise anything. The super industry has a whole lot of capital to invest, as we have seen with the competition for Port Botany. It’s a lot of capital, there’s just not that many deals."

That is in contrast to the situation in Europe, where governments are selling state-owned assets to reduce the chronic deficits that sparked the euro zone’s sovereign debt crisis.

“They’re not discussing it or debating it, in many parts of Europe they’ve got clear directives [to privatise infrastructure]," said Mr Himbury.

“Australia is clearly in a stronger position, but the infrastructure needs of the country are pretty major."

The IFM consortium was vying with a group comprising Ontario Teachers’ Pension Plan and Hastings Funds Management and a consortium of Alberta Investment Management, CPP Investment Board, QIC and Future Fund.

Major assets that are of interest to superannuation funds include Victoria’s Port of Melbourne – Australia’s largest port – and the lucrative poles and wires electricity businesses in NSW, although neither is currently up for sale.

Ports sale’s $1.8bn to go into roads: Baird

Privatisation of infrastructure assets that are regarded as strategic national holdings has been a process fraught with political ideology, union opposition, and public apprehension around the world.

In Australia, public opposition to governments selling off assets to superannuation funds is largely based on the misunderstanding that those same assets will be squeezed for short-term profits with minimal reinvestment by their new owners, said Mr Himbury.

The opportunity for governments, according to the AustSuper chief, is to sell out of old infrastructure, which is more attractive to investors because of its proven returns, to raise capital to invest in new projects.

In NSW, Treasurer
Mike Baird
said the government would plough $1.8 billion from the ports sale into the WestConnex tollroad in Sydney. More than $400 million would be spent on upgrading the Pacific Highway and $170 million on the Princes Highway.

“We are walking a fiscal tightrope . . . In that environment, our main option is releasing capital from the state’s balance sheet," Mr Baird writes in an opinion piece in Monday’s Financial Review.

“With their private sector focus, and without the balance sheet constraints faced by the government, the new operators will be able to bring forward investment in the facilities.

“That means faster movement of goods in and out, lower costs for exporters and importers, and more economic activity."